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Does Company Green Score Affect Stock Price?

Author

Listed:
  • Larry Prober
  • Ilhan Meric
  • Gulser Meric

Abstract

Do investors reward green companies by paying a higher than the equilibrium price indicated by the capital-asset pricing models? Or do they penalize green companies by paying a less than the equilibrium price because going green and keeping green is costly and reduces company profits? In this study, we seek an answer to these questions by using the green scores published by Newsweek magazine for the S&P 500 companies in 2012. We use the parameters of the Fama-French three-factor capital asset pricing model as control variables in multivariate linear regressions to assess the impact of company green score on stock price. We use the event-study methodology to test our hypothesis with one-week, four-week, and ten-week event windows after the publication of the company green scores by Newsweek. Our findings indicate that a company’s green score is not priced by the market and that the variation between companies in terms of their green scores cannot explain the variation between their stock returns.

Suggested Citation

  • Larry Prober & Ilhan Meric & Gulser Meric, 2015. "Does Company Green Score Affect Stock Price?," Review of Business and Finance Studies, The Institute for Business and Finance Research, vol. 6(3), pages 11-19.
    • Handle: RePEc:ibf:rbfstu:v:6:y:2015:i:3:p:11-19
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    File URL: http://www.theibfr2.com/RePEc/ibf/rbfstu/rbfs-v6n3-2015/RBFS-V6N3-2015-2.pdf
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    References listed on IDEAS

    as
    1. Heather Dixon-Fowler & Daniel Slater & Jonathan Johnson & Alan Ellstrand & Andrea Romi, 2013. "Beyond “Does it Pay to be Green?” A Meta-Analysis of Moderators of the CEP–CFP Relationship," Journal of Business Ethics, Springer, vol. 112(2), pages 353-366, January.
    2. Wang, Jia & Meric, Gulser & Liu, Zugang & Meric, Ilhan, 2009. "Stock market crashes, firm characteristics, and stock returns," Journal of Banking & Finance, Elsevier, vol. 33(9), pages 1563-1574, September.
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    Cited by:

    1. Wahid, Abdul & Kowalewski, Oskar, 2025. "Sustainable portfolio optimization: A multi-class framework for eco-friendly stocks," Research in International Business and Finance, Elsevier, vol. 76(C).
    2. Wang, Zhuqing & Wang, Xinyu & Xu, Yan & Cheng, Qiuying, 2022. "Are green IPOs priced differently? Evidence from China," Research in International Business and Finance, Elsevier, vol. 61(C).

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    More about this item

    Keywords

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    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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